Chapter 6

1. Chapter 6 Defining the Organization's Strategic Direction

2. Chapter 6 Defining the Organization’s Strategic Direction

3. Overview A coherent technological innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm. Formulating this strategy requires: Appraising the firm’s environment, Appraising the firm’s strengths, weaknesses, competitive advantages, and core competencies, Articulating an ambitious strategic intent.

4. Assessing the Firm’s Current Position External Analysis Two common methods are Porter’s Five-Force Model and Stakeholder Analysis. Porter’s Five-Force Model Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers. Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.) Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for vertical integration.

5. Assessing the Firm’s Current Position Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for vertical integration. Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price. Recently Porter has acknowledged the role of complements. Must consider: how important complements are in the industry, whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and who captures the value offered by the complements.

6. Assessing the Firm’s Current Position Five-Force Model

7. Assessing the Firm’s Current Position Stakeholder Analysis • Who are the stakeholders. • What does each stakeholder want. • What resources do they contribute to the organization. • What claims are they likely to make on the organization.

8. Assessing the Firm’s Current Position Internal Analysis Identify the firm’s strengths and weaknesses. Helpful to consider each element of value chain.

9. 2. Assess which strengths have potential to be sustainable competitive advantage Rare Valuable Durable Inimitable Resources are difficult (or impossible) to imitate when they are: Tacit Path dependent Socially complex Causally ambiguous Assessing the Firm’s Current Position Competitive Advantage Sustainable Competitive Advantage

10. Identifying Core Competencies and Capabilities Core Competencies: A set of integrated and harmonized abilities that distinguish the firm in the marketplace. Competencies typically combine multiple kinds of abilities. Several core competencies may underlie a business unit. Several business units may draw from same competency. Core competencies should: Be a significant source of competitive differentiation Cover a range of businesses Be hard for competitors to imitate

11. Identifying Core Competencies and Capabilities

12. Risk of Core Rigidities When firms excel at an activity, they can become over committed to it and rigid. Incentives and culture may reward current competencies while thwarting development of new competencies. Dynamic capabilities are competencies that enable the firm to quickly respond to change. E.g., firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity; firm may develop competency in working with alliance partners to gain needed resources quickly.

13. Strategic Intent Strategic Intent A long-term goal that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the organization. Typically looks 10-20 years ahead, establishes clear milestones Firm should identify resources and capabilities needed to close gap between strategic intent and current position.

14. Theory In Action • The Balanced Scorecard • Kaplan and Norton argue • that effective performance • measurement should • incorporate: • Financial perspective • Customer perspective • Internal perspective • Innovation and learning

15. Reinventing Hotels: citizenM • In 2008, Michael Levie, Rattan Chadha, and Robin Chadha set out to develop a new kind of hotel by rethinking what dimensions customers really cared about, and which they didn't really value. • They decided to offer: • Small “pod-like” rooms with luxurious amenities • Stylish ambience • Self check-in with no reception desk or porters • Self-service kitchen instead of restaurant or bar • “Mood pads” for adjusting temperature, lighting, etc. • Average of $50 lower price per night than hotels in a similar class • The combination of the comfortable and stylish ambiance with affordable prices resulted in occupancy rates that were consistently higher than industry averages -- over 95% compared to 85%.

16. Reinventing Hotels: citizenM Discussion Questions 1. What are some of the challenges and opportunities of competing in the hotel industry? How do you think the hotel industry (or travel industry more generally) has changed over time? 2. Can you identify different customer groups in the hotel industry? What are some of the ways that hotels attract these different groups? 3. What are the advantages and disadvantages of targeting a narrower niche of customers rather than trying to appeal to a wide range of hotel customers? 4. What are some of the ways that citizenM has substituted technology for labor? What are some of the benefits/risks of this approach? 5. Can you think of other ways to dramatically re-envision how a hotel might operate and attract guests? What are the advantages and disadvantages of your approach?